Fixed-rate buyers seen as biggest winners if gilt and swap rates continue to fall

Lower market yields are creating the conditions for more competitive mortgage pricing, and analysts say fixed-rate borrowers stand to benefit most if the trend continues. UK government bond yields — particularly gilt yields — play a central role in how lenders price fixed-term mortgages. When those yields fall, the cost of funding for banks decreases, making cheaper mortgage offers more viable.

This relationship is especially influential in two-, three- and five-year fixed deals. As gilt and swap rates drop, lenders can reduce rates while maintaining profitability. Recent dips in long-term market yields have already prompted some lenders to launch lower fixed-rate offers, signalling that competition could intensify if borrowing costs keep sliding.

Improved affordability is one of the immediate effects. Lower mortgage rates translate to reduced monthly repayments, enabling buyers to borrow more within the same income range. This shift could help first-time buyers and existing homeowners looking to upgrade, both groups that have struggled to navigate the higher-rate environment of the past two years.

Remortgagers are also watching yields closely. Many fixed deals agreed during the rate spike will expire throughout 2025 and 2026. If yields continue to retreat, refinancing could become significantly cheaper than borrowers initially feared when rates peaked, easing the financial pressure on households rolling off older fixed terms.

However, not all borrowers will benefit instantly. Those locked into fixed deals will not see their repayments change until they switch products, and lenders do not always pass on reductions in full. Competitive strategy, risk tolerance and wider economic pressures may limit how far and how fast mortgage rates fall from here.

Market confidence plays a major part too. If inflation remains subdued and economic conditions stabilise, sustained lower yields could allow mortgage rates to drift down through 2026. But if market volatility returns — for example through unexpected economic data or policy changes — yields could rise again, slowing momentum.

For now, brokers report rising optimism among buyers waiting for the right moment to secure a new deal. While mortgage pricing will continue to respond to broader economic forces, falling market yields are one of the strongest signals that better UK mortgage deals may be on the horizon rather than behind us.